Rate increase at New Orleans Public Belt Railroad was self-destructive, consultant says

The once-obscure New Orleans Public Belt Railroad burst into the headlines last year amid revelations that then-General Manager Jim Bridger used the agency to support a lavish lifestyle that included frequent meals at white-tablecloth restaurants and, during at least one memorable weekday lunch, getting "totally cinco de mayoed" on margaritas at a local cantina.

View full sizeEllis Lucia, The Times-Picayune archiveThe logo of the New Orleans Public Belt Railroad is displayed on one of its three Pullman cars.

Beyond the raft of questionable credit card expenses, Bridger spent more than $3 million in public money to buy three antique Pullman railcars -- sometimes loaning them out to friends for boozy catered events -- and a fleet of luxury SUVs for the Public Belt. He also signed off on nearly $2 million in apparently unlawful employee bonuses and charitable gifts, a 2010 report by the legislative auditor found.

But Bridger's taste for the finer things in life likely was far less damaging to the Public Belt than a series of rate increases the former New York City railroad executive imposed on what had been the city-owned railroad's biggest customer.

In 2007, the Burlington Northern Santa Fe Railway accounted for nearly half of the agency's $20.8 million income from train operations. Now, it is a bit player, paying the Public Belt just $189,000 so far this year, the bulk of it for access to freight lines that serve the city's wharves -- and over which the Public Belt holds a monopoly -- according to the agency's interim general manager, John Morrow.

The sum amounts to just 4 percent of about $4.6 million in overall business in 2011, he said.

A top railroad consultant and operator told Public Belt commissioners last week after a two-day, in-house review that the agency's value during the past four years has diminished by half, perhaps to as little as $20 million. The reason? Burlington Northern's near-abandonment of the Public Belt.

"The (increasing) prices were what basically destroyed the asset," said Georgi Kirov, the chief investment officer for RailAmerica Inc. "Half the business went away, and in our discussion with the (Burlington Northern), it is not coming back.

"What (the Public Belt) was four years ago is probably untenable," he said, adding that if Burlington Northern were persuaded to resume its lost business at today's market rates, it probably would take until 2016 at the soonest for the agency to regain the book value it had in 2007.

BN goes elsewhere

Bridger, who resigned amid the controversy over his profligate spending habits, said last year that he jacked up Burlington Northern's rates because the company's trains consistently arrived hours late, throwing off other clients' schedules. He said he expected increased business with two other carriers to cover the difference, but the economic downturn foiled his strategy.

Meanwhile, Burlington Northern appears extremely unlikely to ramp up its business here again. In the face of the Public Belt's escalating rates, the freight carrier built its own rail yard outside Houston to sort, service and fuel train cars itself.

"We're at a point now where we have invested in that infrastructure," Rollin Bredenberg, Burlington Northern's vice president for service design and performance, told Public Belt commissioners in October. "It would be awfully difficult, in my opinion, for the NOPB to come up with a price that would cause us to walk away from the investment that we have already put in the ground."

With that as the case, RailAmerica pegged the Public Belt's value, assuming moderate economic growth, at between $20 million and $40 million, Georgi said, noting that "today, the railroad is probably half the volume of what it used to be."

Morrow, the agency's interim general manager, blanched at that figure, saying the net assets of the city-owned railway -- locomotives, track, land and real estate -- are worth about $70 million, not including a $5 million maintenance building under construction by the state as part of the Huey P. Long Bridge expansion project.

Anyone looking to acquire the Public Belt has an incentive to lowball the price, he added.

But Morrow acknowledged the loss of a huge chunk of Burlington Northern business has taken its toll. "Forty percent of our revenue was directly from the BN," he said.

Private sector sniffing around

Even so, the Public Belt managed to net nearly $3.2 million in profits in 2010 and so far this year has made about $1 million, Morrow said. He noted that when Mississippi River flooding in April impeded rail lines in Memphis, Tenn., Burlington Northern officials used the Public Belt to move freight cross-country.

The extravagance also has been reined in, from new restrictions on credit-card use to the sale of most of the agency's automobiles to a pending request for a lessor for the plush Pullman cars. "The mayor asked us to stabilize the railroad after all of the things a year or so ago, and we have done that. We have complied with all of the legislative auditor's criticisms," Morrow said.

Aware of the Public Belt's recent struggles -- and Mayor Mitch Landrieu's suggestion last year that the city might be better off selling or leasing its 25 miles of track, including the Huey P. Long Bridge -- RailAmerica and at least three other private operators have approached the agency recently with proposals for buying it or taking over management.

The interest has flowed even though the Public Belt hasn't issued a formal solicitation.

One of the parties is a consortium of five of the six Class I railroads that use the city-owned railway, including Burlington Northern. The outlier, Kansas City Southern, has proffered its own plan, while Genesee & Wyoming Inc., which RailAmerica executives described as their chief North American competitor, also has come to the Public Belt to outline its strengths.

RailAmerica executives pointed out last week that selling the Public Belt could mean a windfall for state and local government entities struggling in a weak economy.

Commissioners, however, have responded guardedly to all offers, emphasizing that a third-party operator would have to provide blue-ribbon service to the Port of New Orleans, as well as maintain safety standards particularly in places where Public Belt railway traverses residential and tourist hubs, such as along the river in the French Quarter.